Currency Redenomination Research Articles

Currency Redenomination Risk

Abstract A eurozone exit or breakup exposes bondholders to currency redenomination risk. I quantify redenomination risk since the sovereign debt crisis: It contributes substantially to credit spreads around changes in government in France and Italy. Bond prices suggest that markets have priced a potential Italian exit as isolated, and a French one as a breakup. Unlike conventional default risk, redenomination risk can be negative depending on the strength of the national “shadow” currency. Countries with strong shadow currencies earn breakup-insurance premia from the eurozone analog of “exorbitant privilege.” Yield effects are quantitatively large for implied exit probabilities as low as 1%.

Dropping the Zeroes: Between Hope and Reality for Sierra Leone: A Critical Review of the Literature

Many developing and transitional economies have attempted to embark on currency reforms including redenomination. There are various reasons to redenominate a country’s currency but the most important factor is inflation. The primary objective of this research is to perform a critical evaluation of the literature in a bid to broadly understand the efficacy of currency redenomination and why some countries face the difficulty of redenominating several times in order to attain stability but still not successful and lessons to be drawn in the context of Sierra Leone. Based on the literature, redenomination will be ineffective where it is employed on a very weak economy base or macroeconomic stabilization policies are just underway. Redenomination is not a panacea to economic woes as it does not work in isolation but is a component of other broad based macroeconomic stabilization policies. Thus, redenomination is a means to an end and not an end in itself.

Analysis of the Relationship between Currency Redenomination and Financial Transaction Costs in Nigeria

The study analyses the relationship between currency redenomination and financial sector transaction costs in Nigeria using a sample of 200 respondents from ten financial institutions. Applying the Chi-square test, the study reveals that high currency redenomination removes wasteful transactions removes user costs (difficulties arising from memorizing, calculating and carrying large sum of lowest denominations: coins and smaller notes). The results also show that currency redenomination influences inflationary pressure and currency liberalization in Nigeria. Based on the findings the study recommends the introduction of currency redenomination to facilitate the consumers' cash payment and reduce the cost incurred by producers and issuing authorities, and also make payment system more efficient and effective.

Currency redenomination and firm value growth: Lessons from a developing economy

The redenomination of the Cedi with the new Ghana Cedi in 2007 was met with skepticism and outright opposition in certain sectors of the economy. Businesses feared that this would decrease their net worth. Despite the time that has elapsed since the redenomination exercise, it is yet to be proven whether the fears of individuals who predicted its negative impact on firms’ performance had been confirmed or the optimism of those that expected its positive impact on firms’ performance has prevailed. Therefore, the study examined the impact of the cedi redenomination on firms’ value growth in Ghana. The study used the financial records of listed firms in Ghana, five years before and five years after the redenomination of the currency. The firms’ value growth was measured based on the growth in Tobin’s Q and return on assets (ROA). A generalized method of moments (GMM) estimation technique was adopted for the regression analysis. The results indicated that the firms’ value increased, whilst profitability decreased in the same year. Moreover, the results showed sustained growth in the profitability of firms after the redenomination exercise. The study concludes that the currency redenomination improved the firms’ profitability, whilst their value was not improved. The significant implication of the results is that governments can use redenomination as a tool to influence micro-economic activities. This study is perhaps the first to use firm-level data to examine the impact of currency redenomination on firms’ value growth in an African country.

Redenomination risk in eurozone corporate bond spreads

We investigate the risk spillover from euro area government bond spreads (relative to a safe German government bond of similar maturity) to nonfinancial corporate bonds in France, the Netherlands (‘hard’ euro-area countries), and Italy, Portugal and Spain (‘soft’ euro-area countries). In addition to standard firm- and bond-specific determinants of corporate bonds (capturing liquidity and tax effects, and other euro area macroeconomic risks), we show that there is significant risk transfer from government bonds to the nonfinancial corporate sector. After decomposing the government bond spread into a default risk and a currency redenomination risk component, associated with a possible split in the euro, we find that redenomination risk has been a significant factor in the pricing of corporate bonds, particularly in the ‘soft’ euro-area countries.

Impact of Currency Redenomination on an Economy: An Evidence of Ghana

The main objective of this study is to ascertain the impact of currency redenomination on the Ghanaian economy. Since independence in 1957, Ghana has had series of redenomination exercises but the recent one which became a debatable topic happened in 2007. As a result, the study is conducted to determine the pre and post-performance of the country using 2007 as the benchmark. This research takes into consideration the quantitative research technique based on ex-post factor design. Secondary data of the research variables (GDP, Economic growth, Balance of trade, inflation, FDI and Globalization index) were used over a 20-year period between 1997 and 2017. Analytical techniques of both descriptive statistics and independent sample test were used for the research. The t-test for equality of means adopted was to determine the statistically significant difference on the economic variables. The study also used the Levene’s test of equality of variance assumed. It was concluded that, currency redenomination is beneficial to an economy’s growth. It was therefore recommended that, the government of Ghana initiates policies that will boost local production to support the exercise so as to increase GDP and other associated economic variables.

FAKTOR-FAKTOR YANG MEMPENGARUHI KEBERHASILAN REDENOMINASI MATA UANG: PENDEKATAN DATA HISTORIS DAN PERCOBAAN

Redenomination is a simplification of nominal value of currency by reducing digit (zero number) without reducing the real value of the currency. The main objective of this research was to examine whether the economic conditions at the time of redenomination may affect the success of currency redenomination. The methods used were regression analysis on historical data of 30 countries which are involved in redenominating their currencies, economic experiments with t-test, and survey of people’ perspective. Based on regression analysis, inflation will decrease and economic growth will rise higher after redenomination, if previously a country have experienced high economic growth as well. Based on experimental research, when inflation was high, redenomination could increase the selling price. Otherwise, when inflation was low, redenomination could decrease the selling price. Changes in selling price after redenomination was not affected significantly by differences in economic growth conditions. In different economic conditions, redenomination policy did not significantly affect the changes number of transactions and total value of transactions in the market. From the survey results, public did not believe government can control inflation after redenomination. Redenomination also will not affect consumption pattern

Leaving a Mark on the Euro

A eurozone exit or breakup exposes bondholders to currency redenomination risk. I document and quantify redenomination risk since the sovereign debt crisis: in France and Italy, it has contributed substantially to credit spreads around changes in government. Other asset prices suggest that markets have priced a potential Italian exit as isolated, and a French one as a breakup. Unlike conventional default risk, redenomination risk can be negative depending on the expected strength of the national 'shadow' currency. Countries with strong shadow currencies---most notably Germany---therefore earn breakup-insurance premia via the eurozone analogue of the 'exorbitant privilege'.

How Billionaires Become Valuable Millionaires ? : Psychological Impact of Redenomination on Economy

The study aims to investigate the psychological impact of deleting zeroes from the value of national currency. The data were collected from five countries: Israel, Argentina, Poland, Turkey and Brazil to investigate the impact of deleting zeroes. Line graphs and simple percentages were used to analyze the impact of redenomination on inflation. The results revealed almost positive impact of redenomination on economy in all cases. Negative impacts were found only in two events of the countries i.e. Argentina and Brazil in 1983 and 1996 respectively. It was concluded that the redenomination can be used to create value and to control inflation. Keywords: Currency Redenomination, Value Creation; Inflation, National Economy; Psychological Impact

Inflation in Nigeria: Possible determinants and remedies to tackle it in Nigeria

The previous Governor of the Central Bank of Nigeria (CBN) had intended to introduce the N5,000.00 currency bill into the Nigerian economy and claimed that such currency bill would help it manage the exchange rate especially against the dollar. This generated a huge outcry from the public especially economists. The major reason was that this introduction would generate inflation and also because the policy ran counter to the cash-less policy of the Central Bank of Nigeria. But to the Central Bank, there was no economic theory to suggest a currency redenomination could cause inflation. This debate once more threw up a need to reexamine the determinants of inflation in Nigeria. Generally, inflation could be cost push or demand pull but what drives the demand or informs cost quite often differ from one economy to another. This study examined the factors responsible for increasing cost of production and spending behaviour in Nigeria. It was able to identify 13 factors that impact on inflation. However, the degree of impact of each factor is left for another study. The study recommends that government should concentrate on providing social infrastructure that would encourage the private sector to invest and expand output, taking advantage of existing unemployed resources. This would help to stem inflation in Nigeria which is usually caused by scarcity.

PENENTU KEBERHASILAN REDENOMINASI MATA UANG: PENDEKATAN HISTORIS DAN EKSPERIMENTAL

Redenomination is a simplification of nominal value of currency by reducing digit (zero number) without reducing the real value of the currency. The main objective of this research was to examine whether the economic conditions at the time of redenomination may affect the success of currency redenomination. The methods used were regression analysis on historical data of 30 countries which are involved in redenominating their currencies, economic experiments with t-test, and survey of people’ perspective. Based on regression analysis, inflation will decrease and economic growth will rise higher after redenomination, if previously a country have experienced high economic growth as well. Based on experimental research, when inflation was high, redenomination could increase the selling price. Otherwise, when inflation was low, redenomination could decrease the selling price. Changes in selling price after redenomination was not affected significantly by differences in economic growth conditions. In different economic conditions, redenomination policy did not significantly affect the changes number of transactions and total value of transactions in the market. From the survey results, public did not believe government can control inflation after redenomination. Redenomination also will not affect consumption pattern. Keywords: Redenomination, Inflation, Economic Growth, Experiment JEL Classification: C91, E31, E42, E58

Impact of Currency Redenomination on Inflation Case Study Turkey

Countries that suffer from high inflation must consequently deal with an unpractical, high price level. This problem lasts even if the country is already on the disinflation path. The solution can be found in redenomination when the face value of all prices is reduced. This raises an interesting question whether redenomination as such could help the disinflation process. Cutting zeros could help convince market subjects that the central bank means its disinflation efforts seriously. In the specific, the goal of this paper is to find out if Turkish redenomination in 2005 contributed to the disinflation process. We used the Chow test and Vector–Autoregressive model to detect if redenomination created a fracture in inflation development. We indeed discovered a fracture, but it is difficult to determine the exact occurrence of the break. We can conclude that the process of redenomination as such probably had a direct impact on inflation in the country.

Perancangan Desain Mata Uang Kertas Rupiah sebagai Kasus Wacana Redenominasi

According to Bank Indonesia, the currency redenomination is simplification by reducing the three-digit number zero, without reducing its value. Fundamental changes in the nominal rate of writing, become very urgent in terms of design drafting new bills. The process and method of creating the work is qualitative, ie, empirical studies of cultural phenomena in the creation of this work aimed at deepening the validity of the data, the researchers involved in the search for the data directly in the field. The way it can play a significant role in revealing and unravel the problem, in order to create connectivity in the creation of the work needs to be focused on the core message. The findings are contributions of renewable and creative solutions in the manufacture of paper currency design planning of Rupiahs, including the proposed vertical format that has never been applied to the design of paper currency of Rupiahs. Then the proposed implementation of security features barcode, which has advantages and superiority in facilitating the detection of counterfeit banknotes, will make digital counting faster and more accurate than manual.

URGENSI REDENOMINASI NILAI RUPIAH DALAM PEREKONOMIAN INDONESIA

In order to overcome inflation, many countries are employing currency redenomination policy. This is a public policy measure that simplifies the use and managing of the national currency of a country, through its expression in a new and smaller equivalent scale. The goal of rupiah redenomination is to simplify the currency scale in accounting record systems and monetary statements, to strengthten rupiah value, and also to promote the equal growth of social and economical development of the country. Beforehand, low average inflation and economy stability as the demanded factors for currency redenomination policy should be performed by the respected countries. Indonesia is already in this state of ideal economy condition for the policy. In spite of that; due to inadquate preparations, insufficient expense planning, and lack of citizen promptitude; therefore, rupiah redenomination policy is not immediately employed.

Deceiving Our Minds: A Qualitative Exploration of the Money Illusion in Post-redenomination Ghana

The current study is a qualitative exploration of the presence of the money illusion in the lived experiences of Ghanaian adult consumers after a currency redenomination. The results indicated that a switch from the old currency to the new currency had implications for self-worth determination, trivialization of price increases, changes in spending behaviour, and changes in the extent of benevolence. All these changes were related to the tendency to make judgments based on the nominal value of an amount of money, rather than its real value; the judgment bias is known as the money illusion.

The Economics of Currency Redenomination: An Appraisal of Central Bank of Nigeria Redenomination Proposal

On 14th August 2007, the Central Bank of Nigeria (CBN) through its governor made public its proposal to restructure and redenominate the naira by dropping two zeros or moving two decimal points to the left from the currency and issuing more coin denominations with a view to ensuring macroeconomic stability and efficient payment system. The announcement, which took many by surprise, generated a lot of debate among Nigerians and non-Nigerians within and outside the country. While some are of the view that the CBN deserves commendation for the bold step, others are condemning the entire proposal, yet another group try to synthesise the various views from political economy perspectives. Although, the scheme has since been suspended, stakeholders and observers continue to express their views and opinions about the desirability and timeliness of the policy. Accordingly, this paper appraises the suspended naira redenomination scheme in the light of its objectives. The paper is descriptive with presentation based on literature survey and desk analysis. The paper confirms that currency redenomination is based on some happenings within a country and its outcome depends on various fiscal and monetary policies aimed at stabilising the economy. It further posits that redenomination of the naira is not completely a bad policy despite the problems associated with it. It however, suggests that the new strategy should be thoroughly studied and understood, and should go beyond its psychological and portability effects; it should be associated with broader macroeconomic and fiscal objectives.

The National Currency Re-Denomination Experience in Several Countries: A Comparative Analysis

This study covers a highly stringent subject for Romania nowadays - the re-denomination of national currency. The introduction of the hard Leu is the most important monetary measure within the last 50 years. The new banknotes and coins will be the last Romanian money, as starting 2012, Romania will switch to EURO. The redenomination is a technical procedure of reducing the nominal value of the cash ensigns, which was implemented already by around 50 countries as part of an economic reform. The re-denomination does not change the substance of national currency, but it is important due to its psychological impact, both nationally and internationally. We will try to present the long term and short term benefits, the reasons for choosing the timing of the re-denomination, the technical aspects, the influence on the prices and the way in which the new currency was received. Since the redenomination was most recently implemented in Romania and Turkey, we will focus on these cases.